Fidelity and Deposit of Maryland Vs. Arenz - Court Judgment

LegalCrystal Citation

legalcrystal.com/95740

Court

US Supreme Court

Decided On

Nov-06-1933

Case Number

290 U.S. 66

Appellant

Fidelity and Deposit of Maryland

Respondent

Arenz

Excerpt:.....in respect to his financial condition, a contractor induced a surety company to execute a surety bond conditioned on his performance of a state
page 290 u. s. 67
highway contract. upon default by the contractor, the surety became obligated upon a judgment obtained against them jointly by one who had furnished labor and materials entering into the work. the surety paid and took an assignment of the judgment. the contractor subsequently was adjudged bankrupt, and upon his application for discharge from his debts, including that due the surety, the latter filed objections.
held:
(1) the obligation of the surety according to the terms of the bond to pay the contractor's debt was "property" within the meaning of § 14 of the bankruptcy act, as amended (11 u.s.c......

highway contract. Upon default by the contractor, the surety became obligated upon a judgment obtained against them jointly by one who had furnished labor and materials entering into the work. The surety paid and took an assignment of the judgment. The contractor subsequently was adjudged bankrupt, and upon his application for discharge from his debts, including that due the surety, the latter filed objections.

Held:

(1) The obligation of the surety according to the terms of the bond to pay the contractor's debt was "property" within the meaning of § 14 of the Bankruptcy Act, as amended (11 U.S.C. § 32(b)(3)) barring discharge where the bankrupt "obtained money or property on credit . . . by making . . . a materially false Statement in writing respecting his financial condition." P. 69.

(2) The bankrupt obtained, and the surety gave, the bond and obligation "on credit " within the meaning of the section. P.
290 U. S. 69
.

(3) The application for discharge should have been denied. P.
290 U. S. 70
.

2. The word "property," when used without qualification, may reasonably be construed to include obligations, rights, and other intangibles, as well as physical things. P.
290 U. S. 68
.

61 F.2d 607 reversed.

Certiorari, 288 U.S. 597, to review a judgment affirming an order of the District Court granting a discharge in bankruptcy.

MR. JUSTICE BUTLER delivered the opinion of the Court.

In 1929 respondent, for the purpose of procuring a contract with Oregon for highway construction and in compliance with applicable statutes

(§§ 49-701 and 67-1101, Oregon Code 1930), gave to the state a bond on which petitioner was surety conditioned that he would pay for labor and material entering into the work. He failed, and one who had furnished him labor and material sued on the bond and obtained a judgment for $10,000 against

principal and surety jointly. Petitioner paid and took an assignment of the judgment. In 1931, respondent, having been adjudged bankrupt, applied for discharge from his debts, including that due petitioner on account of such payment. Petitioner filed objections showing that respondent induced it to become surety by means of materially false written statements in respect of his financial condition. Respondent demurred, the District Court sustained the demurrer and entered a decree of discharge. The Circuit Court of Appeals affirmed, 61 F.2d 607, following decisions of District Courts in that circuit.
In re Tanner,
192 F. 572, and
In re Ford,
14 F.2d 848.

Cincinnati v. Hafer,
49 Ohio St. 60, 65, 30 N.E.197;
Dillingham v. Insurance Co.,
120 Tenn. 302, 315, 108 S.W. 1148. For the meaning rightly here to be given the word, regard is to be had to the statute and connection in which it is found.
Nashville, C. & St.L. Ry. Co. v. Tennessee,
262 U. S. 318
,
262 U. S. 323
;
Wells, Fargo & Co. v. Jersey City,
207 F. 871, 876. The Act, while making discharge of bankrupts the general rule, conditions the grant upon adherence by every applicant to the standards of honesty and fair dealing in business transactions that are required or reflected in § 32(b)(1), (2), (3), (4), (6), (7). The fraud perpetrated by respondent is of the kind condemned. Giving effect to the rule that legislative intent controls, it is plain that "property" includes petitioner's obligation according to the terms of the bond to pay respondent's debts.
Matter of Dunfee, supra; Gaddy v. Witt,
142 S.W. 926;
Royal Indemnity Co. v. Cooper, supra.
In
Gleason v. Thaw,
236 U. S. 558
, this Court held that the professional services of an attorney were not within § 17(2), which excepts from the general discharge liabilities for property obtained by false pretenses. That was a close case.
See Gleason v. Thaw,
185 F. 345, 196 F. 359. The principle of construction there applied may not reasonably be extended to this one.

It remains to be considered whether the respondent obtained petitioner's obligation "on credit." Principal and surety must be held to have had in contemplation all liabilities that naturally might arise from such a contract.
Matter of Dunfee, supra.
Respondent was bound by agreement, implied by law if not expressly made, that he would make good to petitioner whatever the latter as such surety might be required to pay. Petitioner gave its obligation not for the premium alone, but also in consideration of respondent's promise to reimburse it. Having regard to the results that, at the beginning, the parties were reasonably bound to anticipate, it is clear that respondent